One of the significant changes for 2025 from the signing of the One Big Beautiful Bill Act (OBBBA) is the modification to the State and Local Tax (SALT) deduction cap. The taxes included in this deduction include state property taxes, income taxes, and sales taxes. Here’s what you need to know:
1. Increased Cap Starting in 2025
- The SALT deduction cap will increase to $40,000 for joint filers starting in 2025.
- For individuals married filing separately, the cap will be $20,000.
- This is an adjustment from the current $10,000 cap and aims to provide greater deduction availability.
2. Adjustments for Inflation
- The new cap will be indexed for inflation, meaning it will adjust annually based on economic conditions.
3. Phase-Down for High-Income Taxpayers
- The cap is subject to reduction based on Modified Adjusted Gross Income (AGI). Specifically:
- For taxpayers with modified AGI exceeding $500,000 ($250,000 for married filing separately), the cap will be decreased by 30% of the excess income over these thresholds.
- However, the cap will not fall below $10,000 during this period.
4. Timeline and Future Changes
- From 2025 to 2029, these provisions will remain in place with the adjustments noted above.
- Starting in 2030, the SALT deduction cap will revert to $10,000, returning to the level previously established in 2017.
These changes are designed to offer some relief for taxpayers while adapting to inflation and higher income thresholds. However, the modifications for high-income earners may limit the benefits in certain cases. This evolving policy highlights the importance of planning ahead, especially to maximize deductions while staying compliant with shifting regulations.
If you have any questions regarding these changes, please reach out to your Saville team.